IBM buys DemandTec for $440M to expand SaaS initiatives

IBM's Smarter Commerce initiative is all about watching digital spaces for consumer trends

IBM made headway in further establishing its Smarter Commerce initiative Wednesday, with the acquisition of merchandising and marketing software company DemandTec for $440 million. The acquisition was an all-cash transaction, valuing DemandTec at $13.20 per share, a 56% premium above the stock's closing price a day ago.

The acquisition is still subject to DeamndTec's shareholder approval but is expected to close in Q1 2012.

DemandTec specializes in cloud-based solutions, giving companies valuable data analysis on consumer trends in the marketplace, to better determine prices to yield maximum benefit and target promotion. The company essentially collects data on what customers are doing, and auto-responds to rapidly-shifting marketing and spending patterns, as reflected in data collected from digital spaces and analyzed for maximum return.

"DemandTec cloud-based analytics software collects real-time data from both the Web and stores to help retailers identify trends and better manage pricing and marketing decisions. In other words, it is marrying analytics with CRM," said Mark Moskowitz, an analyst at JPM Research. "In our view, DemandTec expands IBM’s SaaS strategy by adding to IBM’s portfolio of subscription-based offerings. IBM commented that it expects the Smarter Commerce market opportunity in software alone to be $20 billion."

Founded in 1999, DemandTec currently has 355 employees with a headquarters based in San Mateo, CA, with additional offices in London, Minneapolis, Bangalore, and Paris. The company brought in $82.4 million in the 2011 fiscal year. DemandTec's clientele includes Best Buy, ConAgra Foods, Delhaize America, General Mills, H-E-B Grocery Co., The Home Depot, Hormel Foods, Monoprix, PETCO, Safeway, Sara Lee, Target, and Walmart.

IBM estimates the market opportunity for Smarter Commerce solutions -- which is basically being able to read a given market through analysis of digital spaces, like social networking -- at approximately $20 billion in software alone.

DemandTec will be integrated in IBM's Software Group. "IBM will continue to support and enhance DemandTec's technologies and clients while allowing them to take advantage of the broader IBM portfolio," said DemandTec's release.

IBM's Smarter Commerce initative is based in the idea that old models of supply and demand are becoming increasingly obsolete in the growing technological awareness, and subsequent connectivity, of the everyday consumer. The marketplace "requires a connected, agile, and secure supply network that can be dynamically reconfigured in response to trends," or so says a demo video on IBM's site that lays out the fundamental ideas behind the initiative.

One example of IBM's Smarter Commerce initative at work would be transparency between a company's sales, as reflected in social networking during the high traffic holiday season, and making that data available to the company's supply chain. An automatic update of the volume of a given product moved during the busy season could cut thus off potential lags in supply.

Other acqusitions made by IBM in conjunction with its Smarter Commerce initiative include risk management analyitcs software developers Algorithmics in September and real estate management software developers Tririga in March. 

IBM had announced their Smarter Commerce initative only a week before the acquisition of Tririga, with International Data Corporation (IDC) calling the initiative in their report filed two months later, "a compelling combination of social business, ecommerce, and order fulfillment software and services to help customers...embrace the profound shift in the way consumers research, shop for, and purchase goods and services."

Translation: 2011 has seen big companies cottoning on to the extreme potential for social networking to show what people are buying and why.